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The World's 10 Best Stocks

What's so special about them?

To make money in the stock market, we must study the past to identify what strategies will work well in the future. That's why my colleague Tim Hanson has spent years evaluating the U.S. market's best-performing stocks.

While this environment has been tough for all of us, it's important to remember that even over the past five years, we've seen 23 non-microcap multibaggers. Studying such success stories is our best way to learn how to make money in the future.

Of those 23 stocks, these were the top 10 performers:

Company

5-Year Return Through 2008

Southwestern Energy(NYSE:SWN)

870%

Apple

699%

Intuitive Surgical

643%

Range Resources

446%

Myriad Genetics

415%

Celgene

393%

Monsanto

389%

Immucor

340%

Alexion Pharmaceuticals

326%

Seaboard

323%

Data from Capital IQ. Companies capitalized at more than $300 million as of Dec. 31, 2003.

That's a fairly select group, and some pretty heady performance for this environment. But it turns out we can do better.

With these stocksWhile there were just 23 domestic multibaggers over the past five years, there have been more than 100 foreign ones. In fact, all but three of the top 10 stocks in the world came from abroad.

Here's what that top-10 list looks like when we include foreign stocks:

Company

Return 2004-2008

Country

Grupo Elektra

877%

Mexico

Southwestern Energy

870%

United States

Doosan Heavy Industries

855%

South Korea

NMDC

826%

India

Japan Steel Works

825%

Japan

Apple

699%

United States

Tullow Oil

669%

United Kingdom

Zijin Mining

664%

China

China Overseas Land and Investment

659%

Hong Kong

Intuitive Surgical

643%

United States

Data from Capital IQ (a division of Standard and Poor's) and company websites. Includes companies capitalized at more than $300 million on Dec. 31, 2003, with verifiable stock-price histories.

The contrast is enormous when, for instance, we compare the five-year performance of Grupo Elektra, the Mexican banking and electronic retail giant, with those of its U.S. counterparts, Bank of America(NYSE:BAC) and Best Buy(NYSE:BBY).

The lesson is clear: If you restrict yourself to the U.S., you'll miss out on many of the world's best stocks.

How come?Warren Buffett and many other investors note that our economy is too large and mature to enjoy the same growth rates that it has in the past. But that's not true of smaller, emerging economies. That's one of the reasons why companies like Google(NASDAQ:GOOG) and General Electric(NYSE:GE) enjoy such growing demand in foreign markets, and why, for example, China Mobil(NYSE:CHL) enjoys more rapid sales growth than AT&T(NYSE:T).

And when we compare the United States' gross domestic product growth with those of the economies represented above, we see that fast-growing markets can produce tailwinds for investors:

Country

Annual Real GDP Growth 2004-2008

Stock Market Return 2004-2008

China

10.6%

22%

India

8.3%

65%

South Korea

4.6%

37%

Mexico

3.4%

154%

United States

2.6%

(19%)

United Kingdom

2.4%

(1%)

Japan

1.8%

(18%)

Data from The World Bank and Yahoo! Finance.

According to The World Bank, emerging markets like these will continue to grow faster than developed economies. And you can bet these sorts of dynamic economies will yield some fantastic investments.

Here's one exampleTake MercadoLibre, the Latin American eBay. While eBay has grown sales at an impressive 15% annual rate over the past three years, MercadoLibre's business is up a whopping 45% annually.

See, while the number of Internet users in the United States has doubled since 2000, South American Internet use has risen more than 600%. At present, only one-quarter of the continent's population has access to the Web, so there's still plenty of room for growth.

In addition, the governments of Uruguay and Brazil, MercadoLibre's largest markets, have committed stimulus funding for supplying laptop computers to public schools, while Google and HSBC will provide Wi-Fi to the region. As Internet usage increases and customers do more of their shopping online, MercadoLibre, now a virtual monopoly, will profit.

Our team of analysts at Motley Fool Global Gains agrees with Buffett that many of tomorrow's best profit-making opportunities will come from abroad. While we consider MercadoLibre fairly valued these days, it's just one example of the sort of opportunities we're seeing right now.

If you'd like some more stock ideas, feel free to look over our top picks and analysis with a free guest pass to Global Gains. Who knows? You might just see one of tomorrow's 10 best stocks listed there. Simply click here to get started -- there's no obligation to subscribe to anything.

This article was first published on June 12, 2009. It has been updated.

Ilan Moscovitzowns shares of Apple and Google. Apple, Best Buy, and eBay are Motley Fool Stock Advisor recommendations. Monsanto and Best Buy are Inside Value picks. Google, Intuitive Surgical, and MercadoLibre are Rule Breakers recommendations.The Fool owns shares of China Mobile and Best Buy. The Fool's loquaciousdisclosure policyis among the top 10 disclosure policies in the world.